Often people, and not contracts, dictate the success of business relationships.

Litigation seems to have replaced baseball as our national sport.
I never thought the day would come when I singled out a lawyer for praise, but that day arrived last November 8. That's when I gave a presentation on good business practices at a conference sponsored by Roofing Contractor and Walls & Ceilings magazines (like National Driller, published by BNP Media Co.) in Myrtle Beach, S.C. I thoroughly enjoyed mingling with so many readers, and I went away more optimistic about the state of humanity.

One reason was the keynote address by Millard Fuller, founder of Habitat for Humanity, one of the most distinguished charities around. Its demand for “sweat equity” on the part of both donors and recipients sets it apart from most other philanthropic programs that hinge solely on almighty dollars. I urge everyone to get behind this endeavor in any way you can.

A second reason was listening to the attorney who proceeded me on the program. John Alfs is a construction litigation specialist with the Troy, Mich., law firm of Cox, Hodgman & Giarmarco. He spoke on the topic “Protecting Yourself Through Intelligent Contracts,” and made what may be the most profound statement I've ever heard in a business seminar. Said Alfs: “It's better to sign a bad contract with a good person than a good contract with a bad person.”

This single, un-lawyerly sentence goes a long way toward defining a fundamental secret of success in a construction contracting business.

Swarming Flies

A construction project nowadays comes attached with thousands of pages of legal mumbo jumbo, the primary purpose of which is to shift responsibility from one party to others. But everyone involved plays the same game, and this creates endless opportunity for lawyers to craft disclaimers on behalf of their clients and dispute the validity of those protecting other parties - all for sizeable fees, of course.

This brings to mind a well-worn joke about a struggling small town lawyer who suddenly gets rich only after a second lawyer moves into town. It makes a humorous point about the nature of the law business - and make no mistake about it, it is a business. One of the insidious characteristics of the law business is that, unlike most trades, in which fortunes are restrained by demand for the goods they sell or the work they do, lawyers have the ability to create demand for their work. Any legal challenge compels a response from the parties challenged. Before you know it, you find lawyers swarming around an issue like flies on you-know-what.

I constantly hear construction pros complain about the amount of time they spend dealing with mind-numbing legal documents and trying to abide by their strictures. Most find themselves spending more time on legal nonsense than the productive things they are good at, such as running jobs and applying techniques of their craft. Alas, it's hard to get out from under the load of legalities when your own attorney keeps telling you the only way to protect yourself is to fire your own salvos of mumbo jumbo.

How refreshing to hear someone with the credentials of Mr. Alfs revealing his profession's dirty little secret. That is, no matter how airtight the contract language, it's no guarantee of prevailing in a legal dispute. Logic and precedent may or may not carry the day. Rulings are as likely to hinge on who hires the best attorney - or the best-connected one - or which judge gets assigned the case, or what kind of mood that judge may be in on the day s/he hears your case.

Litigation seems to have replaced baseball as our national sport, and the attorneys all seem to be on steroids. In construction, I've heard of certain GCs whose business strategy is to bid jobs at cost or below and count on a high-octane legal staff to turn a profit after projects get underway. The money comes out of the hides of subs and other members of the project team. How would you like to have your signature on a “good” contract with someone like that?

Sometimes a handshake can be as binding as any contract.

Cultivating Quality Relationships

The complexities of construction invite more disputes than most other kinds of business. Buyers and sellers of merchandise may haggle over whether a broken item was sold that way or damaged after purchase, but it's pretty clear one or the other is at fault. In construction, if a building product or system doesn't work as it should, fingers point every which way among owners, general contractors, subcontractors, manufacturers, distributors, installers, designers, specifiers and more.

And then we rely on attorneys to straighten it all out, which is like recruiting arsonists to staff the fire department.

Forgive a bit of a digression, but a prime example of the foolishness that takes place with construction legalisms concerns the endless hullabaloo over “pay-when-paid” and “pay-if-paid” language in a subcontract. The latter supposedly is a kiss of death from a subcontractor's standpoint, because it lets the GC off the hook if he doesn't get his money, while pay when paid definitively obligates the general contractor to pay off a sub at some point. I've been to about a half-dozen seminars listening to attorneys tell subcontractors to never, ever sign a “pay-if-paid” contract. What's more, the American Subcontractors Association has spent great gobs of money over the years on attorney and lobbyist fees trying to get “pay-if-paid” clauses outlawed in state and federal statutes, usually to no avail.

But I have asked attorneys on numerous occasions, “Doesn't 'pay-when-paid' amount to the same thing as 'pay-if-paid' if the 'when' time frame stretches into never?” I have never gotten a satisfactory answer. Attorneys insist until they're blue in the face that it's important to establish the legal principle of a payment obligation, though, as a practical matter it's hard for a sub to get paid if the GC doesn't get his.

As always, court rulings can be found on both sides of this issue. But let's harken back to the main point of this article. The contract language does not matter nearly as much as the character of the person holding the contract.

There are two basic philosophies of doing business. One is to view it like a poker game - with winners and losers. The other is to seek win-win scenarios where everyone manages to profit from their working relationships. Those are the relationships you want to cultivate.

Most contractors think of projects in terms of plans and specs and bidding procedures. Inexperienced or desperate contractors will take on virtually any job whose blueprints seem doable and hold the promise of eking out a profit.

Wily veterans ask as many “who” as “what” questions about a proposed project. They refuse to work for certain GCs or owners under any circumstances.

And sometimes, when dealing with the right people, a handshake can be as binding as any legal document.
ND